Cookies are essentially tokens of information, such as preferences and passwords, that some Web servers collect from you when you access them. That data is stored on your hard drive-not on the Web site’s server. Whenever you visit a "cookie" site, the server looks for its cookie on your hard drive and, if found, then reads the information it stored there.
Felt I should point out that the above is not true. The "data" (other than the cookie itself) *is* stored on the server. The last sentence should read: "Whenever you visit a 'cookie' site, the server looks for its cookie on your hard drive and, if found, then reads the information it stored on its own servers."
Actually, if you want to get even more correct, the server tells the computer (client) to look for its cookie on your hard drive...